Introduction
Islamic finance plays a key role in the global economy, covering the financial needs of the currently underserved Muslim population. With Muslims forming a quarter of the world’s population, this is potentially a very large market with consensus estimates putting the current size of the global Islamic finance industry somewhere in the region of US$1.6 trillion. This is further subdivided among Islamic banking, sukuk, takaful and Islamic funds - of which Islamic banking and sukuk issuances dominate the sector with 80% and 15% of total Islamic assets respectively.
Judging from current growth trends, global Islamic finance assets are projected to breach the US$2 trillion mark by the end of 2015.
The primary goal of Islamic funds is to engage in ‘ethical investing’ into products and companies that are compliant with Islamic guidelines. As such, Islamic funds are wealth management vehicles that cater to investors who want exposure to capital markets inside a shariah framework, which is the key distinguishing factor from other conventional funds.
While there have been much progress and advances made in shariah compliant funds over the decades since they first appeared, they are still estimated at less than 5% of Islamic finance assets, suggesting that there is still much room for further growth in this sector.
Industry growth
Figure 1 displays the growth of the Islamic fund industry beginning from 2007. Shariah compliant funds continued their long term trend of growth in 2014 despite a tough start to the year, with current assets under management (AUM) standing at US$88.58 billion managed by a total number of 829 Shariah-compliant investment vehicles. The AUM of the industry grew another US$1.92 billion in the first four months of 2014, driven largely by performance-based gains totalling US$1.56 billion. The Eurekahedge Islamic Fund Index rose 3.93% for April 2014 year-to-date.
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